*2024 US Election countdown* what happens if we get Trump 2.0?

Sharing excerpts of an interesting article from John J. Hardy of Saxo Trader

To be clear, I'm not remotely a Trump supporter. This is just from a financial markets perspective. Just goes to show that the markets don’t always represent our core values.

The current odds for a “Republican sweep” (Trump not only wins but the Republicans retain control of the House of Representatives and take back control of the Senate) is 30%. The consensus is that this scenario could be very positive for global stock markets given the prospect of more tax cuts and deregulation.

Most of the anticipation for a positive reaction in the event of Trump 2.0 are based on the 2016 playbook, when the market anticipated and then got big tax cuts, especially for companies. Assuming some echo of the Trump 1.0 playbook, the sectors that will likely celebrate a Republican sweep scenario:

*US manufacturers* with a large domestic market presence and foreign competition could do especially well as Trump’s new tariffs would make them more competitive domestically (remember that supply chains are often global).

*Big banks* and fossil fuel energy companies. Besides bringing tariffs, Trump has also promised deregulation for traditional energy companies and banks/financial services companies. For banking giants in particular, the hope is that a Trump 2.0 would see the unwinding of some of the strict regulations introduced after the financial crisis in 2007-09. Banks surged on the higher odds of a Trump win in mid-July.

*Stocks* Trump has promised to cut corporate taxes further to 15% from the current 21%, an immediate boost to the bottom line for all companies that are profitable.

*European defence companies* A Trump 2.0 administration will likely see a further weakening in confidence in the US-Europe security alliances and greater US willingness to negotiate with Russia to end the war in Ukraine. This would likely inspire defence outlays in Europe.

However..

*Trade war risk* This was quite prominent during Trump 1.0, when the market would often swing on Trump’s latest tweet about measures against China. But Trump may go bigger and broader this time with tariffs, touching off the risk of a showdown not just with China, but with other large trading partners, from Mexico and Japan to Europe. 

*Strong US dollar* It is widely agreed that tariffs and stimulating tax cuts would drive a stronger US dollar, a risk for global growth and emerging markets.

*Inflation* US deficits are already massive, and further Trump tax cuts and tariffs could risk spiking prices further. Market sentiment could quickly sour if the Fed is seen having to keep interest rates at high levels.

*Civic unrest* Massive disruption if Trump follows through on threats to deport illegal immigrants.

The most positive scenario for markets for the medium term, on the other hand, is likely not Trump 2.0, but a Harris win with a Republican Senate – essentially the status quo. The market often likes it best when politicians can’t do much.